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Mike Sunnucks

Barack Obama’s $1 trillion stimulus package is aimed at propping up the slumped U.S. economy via New Deal-style government spending on public works and alternative energy as well as tax rebates and domestic job creation.

But as details of the plan are revealed, some Arizona economists are raising concerns. Arizona State University finance expert Anthony Sanders, for example, questions the economic sense of funds for mass transit and how quickly the plan will boost employment. While Byron Schlomach, an economist for the Goldwater Institute, says much of the funding aims at the “fondest dreams of liberals.”

Incoming Obama economic advisers and cabinet members outlined the plan in a video on the president-elect’s Web site, change.gov.

Incoming Health and Human Services Secretary Tom Daschle said the stimulus plan will include federal funding for Medicaid and children’s health programs. Democrats have sought to extend programs such as the State Children’s Health Insurance Program to include uninsured middle-class children and to expand other government programs to cover uninsured adults.

Obama’s domestic policy adviser Melody Banks said the stimulus plan also will help public school systems build new schools so they can keep teaching levels and programs in place. “What we want to do is to let them know that help is on the way. That they don’t have to make those kind of cuts. That they can maintain their teaching levels,” said Banks.

Public school teachers are a key Democratic Party constituency.

Obama’s energy adviser Carol Browner said the economic plan also has a focus on alternative energy and green technologies. “This recovery plan offers a tremendous opportunity to train workers in green jobs,” said Browner. Obama’s economic adviser Madhuri Kommareddi talked about how the plan will pump money into public works and transportation projects, including mass transit. “It can help stimulate immediate job creation,” said Kommareddi of the infrastructure investments.

The Obama team hopes to the create millions of jobs and prime the economic pump via the public works outlays and tax rebates for U.S. households.

Kommareddi said that includes expanding mass transit, deploying broadband communications to underserved areas and investing in research labs.

“Clearly, the idea is to just put people to work doing just about anything, but especially accomplishing the fondest dreams of liberals,” said Goldwater’s Schlomach. “This, it is reasoned, will put money in people’s hands so they can spend us back into prosperity.”

ASU’s Sanders expressed concerns about a focus of federal spending on mass transit. “Mass transit, for example, rarely makes any economic sense. It may remove congestion in metro areas and it may reduce aggregate pollution. Hence, some may favor small reductions in congestion and pollution even at enormous costs per passenger, meaning that the private sector would never provide it,” he said. “So, by definition, mass transit is usually favored by those who prefer public solutions to problems rather than private solutions.”

Sanders, a finance professor at ASU’s W.P. Carey School of Business, said Obama’s aim is to make up for lost equity in U.S. housing and lost jobs in the private sector with federal spending and consequently job creation in the construction and green sectors.

“With housing deflation and significantly limited equity extraction, the Obama administration is substituting investment in infrastructure to fill in for the lost housing equity. So, it is hoped that these investments in infrastructure will trickle down to households in terms of employment and greater disposable income. To the extent that the stimulus plan substitutes for the housing bubble, it should provide for great employment and wage growth,” said Sanders.

But he also questions how quickly the Obama plan will work and suggested that a package including immediate tax cuts might have a quicker turnaround.

Obama is looking at tax rebates of $1,000 per family and $500 for individuals, an idea that has received less backing from Democrats.

The construction industry is a prime backer of the Obama plan, which is akin to Franklin Roosevelt’s Works Progress Administration. Groups including the Associated General Contractors say the public works infusion is needed to stave off further jobs cuts by U.S. construction firms. Environmentalists and labor unions, including the Service Employees International Union, also support the Obama plan.

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